HDFC ASSET MANAGEMENT COMPANY LIMITED

IMPACT OF DIRECT TAX CODE 2010 ON INVESTMENTS IN MUTUAL FUNDS

(Effective from 1st April 2012)

Reference Existing Provisions Proposed Under Direct Tax Code 2010 Remarks

Capital Gains • Capital Assets are classified as • Investment assets classified as • At present, base index is
long term and short term for taken as 1980-81. The base
the purpose of computing a) Listed equity shares date would now be shifted
capital gains. and/or equity oriented from 1.4.1981 to 1.4.2000.
mutual funds Hence, capital gains between
b) Other assets 1.4.1981 and 31.3.2000 will
not be liable to tax.
• Capital gain on transfer of equity
shares or equity oriented mutual funds
which have been held for more than 1
year and where STT has been paid
will be exempt from Tax.

• Capital gain on transfer of equity • Based on the taxation rate of

shares or equity oriented mutual funds 10% / 20% / 30% in the
which have been held for less than 1 revised tax slabs, effective
year and where STT has been paid, rate of tax payable on STCG
50% of capital gain will be liable to on equity shares or equity
tax. oriented mutual funds will
be 5% / 10% / 15%.

• Indexation benefits are • In case of Capital Gain on transfer of • Thus, if the investment asset
available for long term capital assets other than equity shares or was purchased any time
assets only. equity oriented mutual funds, between 1st April 2010 to 31st
indexation facility would be available March 2011, then to consider
it to be Long Term, it has to
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 Reference Existing Provisions Proposed Under Direct Tax Code 2010 Remarks
to all investment assets held for more be held upto 31st March 2012.
than 1 year from the end of the
financial year in which the asset is
acquired.

• Short Term Capital Gain on assets

other than equity shares or equity
oriented mutual funds will be taxable
at the marginal rate.
Dividend and • Current rate of DDT is 15% on • DDT rate remains the same as 15% • Dividend income from equity
Dividend dividend distributed by for Company dividends. oriented mutual funds will be
Distribution Tax companies. exempt in the hands of
(DDT) investors, if DDT is paid.
• DDT on equity oriented funds • DDT on equity oriented funds – 5%
– NIL

• DDT on money market mutual • DDT on other than equity oriented • Dividend distributed by the
fund or a liquid fund – 25% funds – N.A. non equity oriented mutual
funds would be taxable in the
• DDT on other than money • There is no surcharge and education hands of investors at the
market mutual fund or a liquid cess. marginal rates.
fund
a) Individual/HUF
investors – 12.5%
b) Other investors – 20%

• All the above are further

increased by Surcharge and
Education cess.

• Once the dividend is subject to

DDT, dividend income is
exempt in the hands of the
investors.
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 Reference Existing Provisions Proposed Under Direct Tax Code 2010 Remarks
Withholding N.A. Withholding tax rates are as follows: • This method of taxation
Tax on would be administratively
Dividends (Non • Resident Individuals – 10% if cumbersome.
Equity Oriented Dividend amount exceeds Rs.
Funds) 10,000 during the financial year
• Companies – 20%
• Non Residents – 20% • Dividend income will be
taxed at a special rate of 20%
in the hands of the non
residents.

TDS on NRI • TDS on Long Term Capital • TDS on Long Term Capital Gain on The rate seems to be high.
Capital gains Gain on equity oriented funds equity oriented funds – NIL
– NIL

• TDS on Short Term Capital • TDS on other Capital Gains – 30%

Gain on equity oriented funds
– 15%

• TDS on Long Term Capital • There is no surcharge and education

Gain on non equity oriented cess.
funds – 20% with indexation
and 10% without indexation

• TDS on Short Term Capital

Gain on non equity oriented
funds – 30%

• All the above are further

increased by Surcharge and
Education cess.

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 Reference Existing Provisions Proposed Under Direct Tax Code 2010 Remarks
TDS on No TDS is deductible on payment TDS on commission or brokerage would TDS deduction & issuance of
Commission or of Commission or Brokerage on be deducted @ 10%, if the aggregate TDS certificates to brokers /
Brokerage on securities to brokers / distributors. amount of payment during the financial distributors would be
Securities (incl. year exceeds Rs. 5,000. administratively cumbersome.
MF Units)
Deduction for At present various investment Investment in Equity linked savings
Savings options are available to assessee scheme (ELSS) of a mutual fund is not
to claim deduction u/s 80 C upto a covered in DTC 2010 as an eligible
limit of Rs. 1 lac. Investment in investment for tax savings.
Equity linked savings scheme
(ELSS) of a mutual fund is
eligible for deduction u/s 80 C.

NOTE: Surcharge and education cess have been removed in Direct Tax Code 2010.

DISCLAIMER: This document is for information purposes only and is not an offer to sell or a solicitation to buy/sell any mutual fund
units/securities. It should be noted that the analysis, opinions, views expressed in the document are based on the Direct Tax Code
(DTC) 2010 bill tabled in the Parliament by the Honorable Finance Minister on Monday, August 30, 2010 and that the said DTC may
undergo changes at the time the DTC is passed by the Parliament and notified by the Government. The information contained in this
document is for general purposes only and not a complete disclosure of every material fact of DTC. For a complete read of Direct
Tax Code (DTC) 2010 please log on to the website: http://finmin.nic.in/DTCode/index.asp In view of individual nature of tax
consequences, each recipient is advised to consult his/ her own professional tax advisor. The information/ data herein alone is not
sufficient and shouldn’t be used for the development or implementation of an investment strategy. It should not be construed as
investment advice to any party.
The statements contained herein may include statements of future expectations and other forward-looking statements that are based
on our current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results,
performance or events to differ materially from those expressed or implied in such statements. All opinions included in this document
constitute our view as of this date and subject to change without notice. The recipient alone shall be fully responsible / liable for any
decision taken on the basis of this document. The content of this document is confidential and intended solely for the use of the
addressee. If you are not the addressee, or the person responsible for delivering it to the addressee, any disclosure, copying,
distribution or any action taken or omitted to be taken in reliance on it is prohibited and may be unlawful. No part of this document
may be duplicated in whole or in part in any form and/or redistributed without prior written consent of the HDFC Mutual Fund/
HDFC Asset Management Company Limited. The recipient(s) should before investing in the Scheme(s) of HDFC Mutual Fund make
his/their own investigation and seek appropriate professional advice.
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